- The Choice
A decade of austerity.... Another one
When the UK was clapping, banging pots and pans to the tune of the goverment, how many were asking what the real cost of the lockdown would be, it comes as no surprise that the chancellor announced more years of austerity to come, today he warned of economic shock... So just what kind of shock can we expect.
In 2008, the financial crises was put down to unruly hedge fund trading, the banks lended mortgages to subprime borrowers (those at risk of defaulting on the debt) to create profits to fund this unruly hedge fund trading. The borrowers stopped paying and the system collapsed, in the UK, this resulted in the government bailing out RBS, one of the largest banks in the world at the time to the tune of £80 billion pounds, the Tory government consequently sold RBS to their buddies at a cut price.
Compare this to today, the regulation regarding mortgage lending was tightened up, so banks supposedly only lended to those who could afford it, safe from collapse from that side? Not quite... what happens if you close down business (yet keep paying people through a government furlough scheme). Here comes the crisis which is unfolding before us, travel restrictions have seen thousands of aircraft grounded around the globe, resulting airlines unable to pay their debts, this has had a knockon effect on airport staff and services, the cruise industry was one of the first casualties of COVID-19, when a virus gets onto a ship, it spreads round like wildfire, in just the first quarter of the year, Norwegian cruise line reported almost 2 billion worth of losses, the cruise industry is currently dead, with it the associated port and services sector, the demand for oil is drying up, billion dollar oil companies losing billions, some might say that this is a good thing for the planet, and has driven a green revolution, not every country is perpared for this, many African, South American and Asian countries rely on oil for their revenue, they will be the last to benifit from a green revolution. Council budgets running dry, transport services running up losses as never seen before, consumer spending is down resulting in retailers going bust. Pubs restaurants and cafes shutting down for good, with thousands of businesses going out of businesses, millions of people losing their jobs and their incomes when the furlough stops, income which they would normally be spent on tourism, travel and retail, the financial cycle grinds to a painful halt
2008 was because the working man or woman couldn't pay for their overpriced home.... This time we have that AND big business who can't pay their overpriced loan. The economic wreck which is heading our way is going to be substantial, millions will be thrown into poverty, public sector will see their relative pay fall over the next decade (but lets not worry about that, we can all stand on our doorstep and clap for them).
We can already see the banks and goverment taking measures to try to stop this, measures which are good indicators of a crash beckoning, quantative easing, the bank of England printed 150 billion to plough into the economy, this devalues the £ and only provides a short term fix for a fundamentily flawed system. The UK national debt now stands at a whopping 2 trillion £, for the first time more than 100% of the GDP.
In 2010 when the Tories got into power, they said the austerity measures would be needed to reduce the deficit, they come up with a timeline to reduce the deficit (the amount the government borrows, verses the revenue), 10 years later and they have failed to even do this, now that target has been blown out the water with a debt level which your great great grandkids probably won't live to see paid off.
How do we avoid the austerity and financial doom and gloom, well it may already be too late and we had never really progressed away from austerity since 2010. The announcement of various vaccines in the final stages of testing (funny how they're all ready at the same time more or less), this will hopefully give the government and consumers the confidence to kick start the economy, however the latter part usually takes time. Large infrastructure projects providing jobs and growth would be another one to help.... However, it seems more likely that the Tories will go for what they normally do, making the poor poorer and the rich richer.